7777 / What is a qualified subchapter S trust (QSST)?
A QSST is a trust that has only one current income
beneficiary (who must be a citizen or resident of the U.S.), all income must be
distributed currently, and the trust corpus may not be distributed to anyone else during
the life of such beneficiary. The income interest must terminate upon the earlier of the
beneficiary’s death or termination of the trust. If the trust terminates
during the lifetime of the income beneficiary, all trust assets must be distributed to
that beneficiary. The beneficiary must make an election for the trust to be treated as a
QSST.1
Planning Point: When the stock is initially transferred to
the trust, the taxpayer must file a separate S corporation election. For both the QSST
and the electing small business trust (ESBT, see Q 8974), the election must be
filed “within the 16 day and two month period beginning on the day that the
stock is transferred to the trust.2